SOLVED

Learning Objective 16-4 1) Which of the following is the principle “weakness” of using negative confirmations for your tests of details of balances for accounts receivable? A) can only be used for large balance accounts B) cannot not be used when account balances “bunch” around a mean value C) conclusions drawn from receiving no reply may not be correct D) response rates are generally too low to draw any conclusions 2) Communication addressed to the debtor requesting him or her to confirm whether the balance as stated on the communication is correct or incorrect is a: A) representation letter. B) negative confirmation. C) bank confirmation. D) positive confirmation. 3) A type of positive confirmation known as a blank confirmation: A) requests the recipient to fill in the amount of the balance. B) is considered less reliable than the regular positive confirmation. C) generates as high a response rate as the regular positive confirmation form. D) is used when the auditor is confirming several small balances. 4) The most effective audit evidence gathered for accounts receivable is the: A) detail tie-in of the records. B) analysis of the allowance for doubtful accounts. C) confirmation of accounts receivable. D) examination of sales invoices. 5) The audit procedure that provides the auditor with the most appropriate evidence when performing test of details of balances for accounts receivable is: A) confirmations. B) recalculation of the aged receivables and uncollectible accounts. C) tracing credit memos for returned merchandise to receiving room reports. D) tracing from shipping documents to journals to the accounts receivable ledger. 6) When should auditors not perform alternative procedures in testing the accounts receivable balance? A) When customers do not return positive confirmation requests. B) When customers do not return negative confirmation requests. C) When confirmations are deemed to be ineffective as an audit procedure. D) When confirmations are too costly to use. 7) A positive confirmation is more reliable evidence than a negative confirmation because: A) fewer confirmations can be sent out. B) the auditor has a document which can be used in court. C) the debtor’s lack of response indicates agreement with the stated balance. D) follow-up procedures are performed if a response is not received from the debtor. 8) When positive confirmations are used, auditing standards require follow-up procedures for confirmations not returned by the customer. Which of the following would not be considered an alternative procedure? A) Send a second confirmation request. B) Examine subsequent cash receipts to determine if the receivable has been paid. C) Examine shipping documents to verify that the merchandise was shipped. D) Examine customer’s purchase order and the duplicate sales invoice to determine that the merchandise was ordered. 9) The positive (as opposed to the negative) form of receivables confirmation may be preferred when: A) internal control surrounding accounts receivable is considered to be effective. B) there is reason to believe that a substantial number of accounts may be in dispute. C) a large number of small balances are involved. D) there is reason to believe a significant portion of the requests will be made. 10) An auditor should perform alternative procedures to substantiate the existence of accounts receivable when: A) no reply to a positive confirmation request is received. B) no reply to a negative confirmation request is received. C) collectability of the receivables is in doubt. D) pledging of the receivables is probable. 11) Confirmation of accounts receivable balances normally provides evidence concerning the: A) valuation of the balances. B) rights of the balances. C) existence of the balances. D) completeness of the balances. 12) If the auditor decides not to confirm accounts receivable, the auditor should: A) always use alternative procedures to audit the accounts receivable. B) include copies of customer statements in the audit files. C) document the reasons for such a decision in the audit files. D) include copies of customer sales invoices in the audit files. 13) The most reliable evidence from confirmations is obtained when they are sent: A) as close to the balance sheet date as possible. B) at various times throughout the year to different segments of the sample, so that the entire sample is representative of account balances scattered throughout the year. C) several months before the year-end, so the auditor will have adequate time to perform alternate procedures if they are required. D) at various times throughout the year to the same group in the sample, so that the sample will not have a time bias. 14) An auditor would be least likely to use confirmations in connection with the examination of: A) inventories. B) long-term debt. C) property, plant, and equipment. D) stockholders’ equity.